Elon Musk’s latest escapade in the world of tech and finance has landed him in hot water, and this time it’s not just with the SEC or a rogue rocket launch. 

Tesla shareholders are suing Musk and the company’s board for what they claim is a breach of fiduciary duty. The case? Musk “inappropriately founded and personally invested at least $750 million in a key Tesla AI competitor.” And to top it off? He funneled their brightest minds and resources to this new rival.

Source: Giphy

The lawsuit was filed in Delaware by the Cleveland Bakers and Teamsters Pension Fund on Thursday 13th of June, 2024.

In their own words, Musk has been “diverting scarce talent and resources from Tesla to xAI, and raising billions of dollars for xAI while touting xAI’s access to Tesla’s AI-related data.” To put it simply, they’re accusing him of playing favorites with his own AI startup, xAI, at the expense of Tesla.

What’s even funnier is that the suit was filed just a few hours before the Tesla annual meeting on Thursday. Now, the reason for the meeting was to restore Musk’s $56 billion payout—which was successful by the way.

They mentioned that Musk has been poaching Tesla employees to work at xAI—about 11 employees. But the most significant was the former’s computer vision team lead, Ethan Knight. This was in March 2024.

Another example they cited was a CNBC article earlier this month, stating that Musk had diverted valuable resources—12,000 Nvidia H100 chips—from Tesla to xAI.

Musk did respond to the article, saying that the Tesla Giga factory in Texas had little space to house them at the time.

Source: X

Another issue raised in the lawsuit was that Musk has been threatening not to build AI products at Tesla unless he is given more control over the company. 

Source: X

When Elon made this post, he held approximately 21% of Tesla’s shares. However, Delaware’s Chancery Court had previously invalidated Musk’s 2018 compensation plan in January, reducing his ownership stake to 13%, as stated in the lawsuit.

With his voting power diminished, “Musk responded by ramping up operations at xAI,” the plaintiffs alleged.

The Vote on June, 13

The shareholders’ vote on June, 13 to reinstate the 2018 pay package is expected to face a lengthy legal battle in Delaware’s Chancery and Supreme Courts, as Tesla seeks to overturn the earlier ruling.

All these have left many Tesla shareholders wondering if Musk is more interested in building his own AI empire than in the success of Tesla. Tesla’s shares have taken a hit this year, falling 26.5%. However, on June 13, they rose 3% to $182.47, with a slight increase in after-hours trading.

Now as for what the shareholders want? They are asking for quite a lot of things. The shareholders want the court to:

  • Hold Musk and the board responsible for their actions
  • Declare that the board failed to act in Tesla’s best interests
  • Award damages to Tesla for the harm caused
  • Take away any gains Musk made from his involvement with xAI
  • Make Musk give up his stake in xAI to Tesla

The outcome of this lawsuit is uncertain, but it’s going to be a closely watched case.

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